Performance Magazine - Issue 21

September 2016

Explore Content

Southeast Asia is made up of ten countries with different languages, cultures, political environments, and levels of economic development. The ten countries also form the Association of Southeast Asian Nations (ASEAN) bloc. It is home to more than 600 million people and is one of the most dynamic markets in the world. With a nominal GDP of US$2.31 trillion, ASEAN is fast becoming a major economic force and a driver of global growth. The move by ASEAN to promote economic integration via the ASEAN Economic Community (AEC)—a single market for goods, services, capital, and labor—is a major milestone and serves to reinforce the regional growth potential. The AEC has the potential to transform the region into one of the largest markets in the world, rivaling that of China and India.

Global investors face the challenge of balancing growth opportunities in the region with economic and political risks. The first step to overcoming this challenge is understanding the politics and local business environment of the region. Located at the heart of the Asia Pacific and in close proximity to India, China, and Japan, ASEAN is geographically well positioned to benefit from trade with these countries. ASEAN’s largest trading partners in 2015 include China, Japan, and the US with a combined 35 percent share to total ASEAN trade. The region’s impressive diversity as a trading bloc is one of its advantages, as it can offer a package of different services across the region, supported by a young and skilled/semi-skilled workforce, booming urbanization, as well as a favorable geographic location.

The AEC is designed to increase the economic bloc’s global competitiveness, removing trade and investment barriers and increasing intra-ASEAN trade. While there is strength in the region’s diversity, it has also proven to be one of the key stumbling blocks to ASEAN’s formal economic integration. While economic integration may seem like an ambitious goal, it is not entirely impossible.

Notwithstanding complex economic and regulatory challenges, much remains to be done to improve the region’s infrastructure, economic inequality, and education standards. The numbers don’t lie: global investors look to ASEAN as the region now receives more foreign direct investment (FDI). According to the recent ASEAN Investment 2015 report, FDI into ASEAN has risen for the third consecutive year from US$117.7 billion in 2013 to US$136.2 billion in 2014. With fierce competition for FDI comes competition for capital. Frontier markets in Southeast Asia such as Laos and Myanmar will face a different challenge than the region’s more developed economies, where increasing productivity and maintaining competitiveness is critical.

Regardless of these challenges, the region is on its way to becoming an economic powerhouse. Financial institutions would do well to understand the region and the opportunity that knocks on the doors of Southeast Asia.

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